Bombay High Court
Garden Silk Mills Ltd vs Gayatri Industries And Ors on 10 March, 2025
2025:BHC-AS:11142
IA-3540-2021.doc
IN THE HIGH COURT OF JUDICATURE AT BOMBAY
CIVIL APPELLATE JURISDICTION
INTERIM APPLICATION NO. 3540 OF 2021
IN
FIRST APPEAL NO. 748 OF 2003
Garden Silk Mills Limited ]
Garden Mills Compound, ]
Outside Sahara Daraja, Surat. ] ...Appellant.
Versus
1) Gayatri Industries, ]
a proprietary concern represented by its ]
sole Proprietor namely, Mr. B. S. Sharma ]
Age about : Adult, Business by Occupation, ]
Address at : Plot No. 287 Dena Bank Road, ]
Near Anganwadi Dadra ]
(Dadra and Nagar Haveli). ]
2) M/s. Petrofiles Co-operative Ltd, ]
P.O. Petrofiles 391, 347, ]
District Vadodara. ]
3) Petrofiles Co-operative Limited ]
P.O. Naldhari, Via Ankleshwar, ]
Dist Bharuch. ] ...Respondents.
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Mr. Shyam Kapadia, Mr. Shayan Dasgupta and Mr. Surya Ravikumar i/b Khaitan & Co.,
for the Applicant / Appellant.
Mr. Aseem Naphade, Ms. Nishtha Malik, Ms. Sonali Kochar, Ms. Bijal Soni, Mr. Tejas
Horambe and Ms. Naqqiya Saifee i/b NAS Legal Advocates for the Respondent.
------------
Coram : Sharmila U. Deshmukh, J.
Reserved on : February 25, 2025.
Pronounced on : March 10, 2025.
Judgment :
1. The First Appeal was preferred by the original Defendant No.1
challenging the judgment and decree dated 20 th January 2003
Patil-SR (ch) 1 of 13
IA-3540-2021.docdecreeing the suit for sum of Rs.28,97,629/- together with interest @
24% per annum. First Appeal was permitted to be withdrawn by order
of 25th February 2025.
2. The present Interim Application has been preferred by the
Appellant seeking a declaration that the impugned judgment and
decree dated 20th June 2003 stands extinguished and no proceedings
in respect thereof can be continued or initiated and for a direction to
release all bank guarantees issued by the Appellant’s bank in favour of
the Registrar pursuant to order of 17 th June 2003. In the alternative,
the Appellant seeks release of all original bank guarantees issued by
the Bank of Baroda, Bhaga Talav branch in favour of the Registrar of
this Court and only retain the bank guarantee dated 17 th August 2021
issued by Union Bank of India.
3. The undisputed fact is that pursuant to the filing of First Appeal
in May 2003, vide order dated 17th June 2003, this Court granted stay
to the impugned judgment and decree on the Appellant’s furnishing
bank guarantee for sum of Rs.29,00,000/-, to be kept alive during the
pendency and disposal of the Appeal. The Appellant is complying with
the said order and bank guarantee was regularly renewed and is
presently valid till 16th August 2025.
4. During the pendency of Appeal proceedings, on 24 th June 2020,
the Corporate Insolvency Resolution Process was initiated against the
Patil-SR (ch) 2 of 13
IA-3540-2021.docAppellant under the provisions of Insolvency and Bankruptcy Code,
2016 [for short “IBC”] by National Company Law Tribunal, Ahmadabad
[for short “NCLT”]. The Resolution Professional was appointed who
invited claims as per the prescribed procedure. Vide order dated 1st
January 2021, NCLT approved the Resolution Plan of the Appellant
under Section 31 of IBC. Admittedly, the Respondent No.1 failed to
lodge their claim with the Resolution Professional resulting in the
claim not being part of the Resolution Plan. The instant Interim
Application seeks release of the bank guarantees with a declaration
that the claim stood extinguished due to default on part of
Respondent No.1 to lodge their claim with the Resolution Professional
and not being part of Resolution Plan.
5. Mr. Kapadia, Learned Counsel appearing for the Appellant would
submit that once the Resolution Plan is approved under Section 31(1)
of IBC, all claims as provided in resolution plan stand frozen and all
claims not forming part of the Resolution Plan stand extinguished. He
draws the attention of this Court to the definition of “Creditor” as
given in Section 2(10) of IBC and the definition of “claim” under Section
2(6) of IBC and would submit that Respondent No.1’s right to payment
under the impugned decree constituted a claim and that the
Respondent No. 1 was a creditor within the meaning of Section 2(10) of
IBC and as the claim was not lodged with the Resolution Professional,
Patil-SR (ch) 3 of 13
IA-3540-2021.docthe same did not form part of the Resolution Plan and stood
extinguished. He draws support from the decision of the Apex Court in
Ghanshyam Mishra & Sons (P) Ltd. v. Edelweiss Asset Reconstruction
Co., Ltd1 and the decision in Committee of Creditors of Essar Steel
India Ltd v. Satish Kumar Gupta2.
6. He submits that as far as the bank guarantee which was
furnished as condition of stay in this Court is concerned, the bank
guarantees form assets of the Corporate Debtor. He submits that
Division Bench of this Court in the case of Siti Networks Ltd. v. Rajiv
Suri3 has in identical facts held that assets provided to secure the
outcome of challenge to a judgment, remain in the ownership of party
that challenged it and the release of such assets would be subject to
the outcome of Appeal. He submits that in the present case, as the
debt stands extinguished, the Respondent No.1 has no right to assert
any claim over the bank guarantees which ought to be released in
favour of the Appellant. He would further submit that the defence of
Respondent No.1 as regards the monies deposited in Court becoming
custodia legis based on the judgment of this Court in Rajendra Prasad
Bansal v. Reliance Communication Ltd4. has been considered in the
decision of Siti Networks Ltd. v. Rajiv Suri (supra) holding that
1 (2021) 9 SCC 657.
2 (2019) 16 SCALE 319.
3 2024 SCC OnLine Bom 3550.
4 2023 SCC OnLine Bom 33.
Patil-SR (ch) 4 of 13
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judgment in the case of Rajendra Prasad Bansal v. Reliance
Communication Ltd (supra) apply only to the parties in that case and
that the statement of law contained therein has been overtaken by the
Supreme Court’s order in the matter of Siti Networks Ltd. v. Rajiv Suri
(supra) permitting the withdrawal of bank guarantees. He would
further submit that Respondent No.1’s reliance on Bombay High Court
Letters Patent, 1866 to contend that issue is required to be decided
based on equities is entirely misplaced as the First Appeal arises from
decree of Court and there is no scope for exercise of equity jurisdiction
and in any event such discretion cannot be exercised in contravention
of law. He submits that it is the Respondent No.1’s own failure to file a
claim within time in the IBC proceedings that has led to the debt being
extinguished and therefore he cannot now seek to invoke equitable
considerations before this Court.
7. Per contra Mr. Naphade, Learned Counsel appearing for the
Respondent would submit that it was on 23 rd June 2000 that the suit
came to be filed, decree was passed on 20 th January 2003, the Appeal
came to be admitted on 17th June 2003 and by order of 17 th June 2003
bank guarantees were directed to be furnished as condition of stay. He
submits that the money deposited in this Court ceases to remain the
asset of the person depositing the same and becomes custodia legis.
Drawing support from the decision in Rajendra Prasad Bansal v.
Patil-SR (ch) 5 of 13
IA-3540-2021.doc
Reliance Communication Ltd (supra), he submits that decision in Siti
Networks Ltd. v. Rajiv Suri (supra) does not overrule the proposition
of law laid down in Rajendra Prasad Bansal v. Reliance
Communication Ltd (supra).
8. He submits that in Rajendra Prasad Bansal v. Reliance
Communication Ltd (supra) the Division Bench of this Court considered
the decision in the case of P. S. L. Ramanathan Chettiar v. O. Rm. P.
Rm. Ramanathan Chettiar5 which has held that once the money has
been deposited in Court as a condition for stay of execution of
judgment, the real effect is to put the money beyond the reach of
parties pending disposal of Appeal. He submits that finding in the case
of Rajendra Prasad Bansal v. Reliance Communication Ltd (supra) is
that the money so deposited did not remain the asset of Corporate
Debtor and it had held that there is no impediment in the judgment
debtor seeking withdrawal of same. He would further submit that in
the present case, Respondent No.1 who is decree holder has been
deprived of the fruits of his decree since the year 2003 and by reason
of the intervening events of the judgment debtor being admitted to
corporate insolvency, this is a fit case where the equities should be
exercised in favour of the Respondent No.1. He submits that such
course is permissible by drawing support from the decision of the Apex
5 AIR 1968 SC 1047.
Patil-SR (ch) 6 of 13
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Court in A. P. Showkath Ali v. State of Kerala6 and M. V. Elisabeth v.
Harwan Investment & Trading7.
9. I have considered the submissions and perused the record.
10. There is no dispute about the fact that pending the hearing and
final disposal of present Appeal, the Corporate Insolvency Resolution
Process was initiated against the Appellant in the year 2020 and
Resolution Plan was approved under Section 31 of IBC on 1 st January
2021. The question to be considered is the effect of approval of
Resolution Plan upon the decree in favour of Respondent No.1 in a
case where admittedly the Respondent No.1’s claim is not part of
Resolution Plan due to failure of Respondent No.1 to lodge its claim
with the Resolution Professional. For that purpose it would be
necessary to have a look at the relevant provisions of IBC.
11. Section 3(6) of IBC defines the expression “Claim” as under :
“(6) “claim” means–
(a) a right to payment, whether or not such right is
reduced to judgment, fixed, disputed, undisputed, legal,
equitable, secured or unsecured;
(b) right to remedy for breach of contract under any
law for the time being in force, if such
breach gives rise to a right to payment, whether or not
such right is reduced to judgment, fixed, matured,
unmatured, disputed, undisputed, secured or
unsecured”
6 (2018) 11 SCC 688.
7 1993 Supp (2) SCC 433.
Patil-SR (ch) 7 of 13
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12. Section 2(10) of IBC defines the expression “creditor” to mean
any person to whom a debt is owed and a financial creditor, an
operational creditor, a secured creditor, an unsecured credit and a
decree holder. Section 2(11) defines “debt” to mean a liability or
obligation in respect of a claim which is due from any person and
includes a financial debt and operational debt.
13. Conjoint reading of the aforesaid provisions makes it evident
that the Respondent being a decree holder fell within the definition of
creditor to whom debt is owed.
14. Under Section 13 of IBC, upon admission of the application, the
Adjudicating Authority is required to cause a public announcement of
the initiation of corporate insolvency resolution process and call for
submission of claims under Section 15 of IBC. The public
announcement to specify the last date for submission of claims.
Section 30 of IBC governs the contents of Resolution Plan and specifies
that the Resolution Plan shall provide for payment of debts and
Section 31 of IBC provides for approval of the Resolution Plan by the
Adjudicating Authority.
15. One of the issues before the Hon’ble Apex Court in the case of
Ghanshyam Mishra & Sons (P) Ltd. v. Edelweiss Asset Reconstruction
Co., (supra) was whether after approval of resolution plan by the
Adjudicating Authority, a creditor including the Central Government,
Patil-SR (ch) 8 of 13
IA-3540-2021.doc
State Government or any local authority is entitled to initiate any
proceedings for recovery of any of the dues from the corporate debtor
which are not part of resolution plan approved by the Adjudicating
Authority. The Hon’ble Apex Court answered the issue in paragraph
102.1 and 102.3 as under:
“102.1. That once a resolution plan is duly approved by the
adjudicating authority under sub-section (1) of Section 31, the
claims as provided in the resolution plan shall stand frozen and
will be binding on the corporate debtor and its employees,
members, creditors, including the Central Government, any
State Government or any local authority, guarantors and other
stakeholders. On the date of approval of resolution plan by the
adjudicating authority, all such claims, which are not a part of
resolution plan, shall stand extinguished and no person will be
entitled to initiate or continue any proceedings in respect to a
claim, which is not part of the resolution plan.102.3. Consequently all the dues including the
statutory dues owed to the Central Government, any State
Government or any local authority, if not part of the resolution
plan, shall stand extinguished and no proceedings in respect of
such dues for the period prior to the date on which the
adjudicating authority grants its approval under Section 31
could be continued.”
16. The issue is no longer res integra and all claims which are not part
of the Resolution Plan shall stand extinguished and no person will be
entitled to initiate or continue any proceedings in respect of any such
claim. As admittedly the Respondent’s claim was not part of
Resolution Plan, the claim stood extinguished upon approval of the
Resolution Plan on 1st January, 2021 and an embargo is placed on
initiation or continuation of any proceedings for executing the decree.
17. In view of the settled position of law, the Appellants have
Patil-SR (ch) 9 of 13
IA-3540-2021.doc
withdrawn the First Appeal and the Interim Application seeks relief of
release of bank guarantees. The bank guarantees were submitted to
secure the decree as condition of stay. The issue as to whether the
bank guarantees constitute asset of the Corporate Debtor or not is
immaterial as the debt itself stands extinguished and once the
Respondent’s debt stands extinguished, no right can be claimed by the
Respondents in the bank guarantee. Permitting the Respondent No.1
to stake a right to the bank guarantees would amount to satisfying the
debt of Respondent No.1 which is precisely prohibited, once the claim
does not form part of the Resolution Plan.
18. The matter ought to have rested here. However, Mr. Naphade
has relied upon the decision in the case of Rajendra Prasad Bansal v.
Reliance Communication Ltd (supra) to contend that bank guarantee
deposited in this Court is not an asset of Corporate Debtor. In fact, the
said position could have been considered at the stage where the
Corporate Resolution Process is underway and the Resolution Plan has
not yet been approved. In the case of Rajendra Prasad Bansal v.
Reliance Communication Ltd (supra), the judgment debtor was
undergoing Corporate Insolvency Resolution Process and the issue was
whether the Respondent-decree holder can be allowed to withdraw
the monies deposited by Appellant towards the stay of execution of
impugned judgment given that the Appellant is undergoing CRP. It is in
Patil-SR (ch) 10 of 13
IA-3540-2021.doc
that context, the Division Bench of this Court considered various
decisions on the subject which held that the real effect of depositing
money in the Court was to put the money beyond the reach of parties
pending the disposal of Appeal and when money is so deposited in
Court, it is custodia legis and is no longer under the control of either
the judgment debtor or decree holder. The money so deposited and
which is in the custody and control of Court has been held to
automatically become the property of decree holder and he has vested
right to withdraw the same amount. The decision has been rendered in
completely different factual scenario and is clearly distinguishable. In
the present case, the fate of the money deposited in this Court is no
longer subject to the decision in Appeal as the fate has been sealed by
the approval of Resolution Plan on 1st January 2021 which does not
include the claim of Respondent No. 1.
19. Similarly, in the case of Siti Networks Ltd. v. Rajiv Suri (supra)
the dispute arose in respect of the bank guarantee which was
deposited in the Court and was sought to be withdrawn by the
Resolution Professional during the Corporate Insolvency Resolution
Process. The Division Bench of this Court was considering the grant of
permission to the Appellant for withdrawal of the amount deposited in
this Court. In addition, there was bank guarantee furnished as
condition for stay. After Corporate Insolvency Resolution Process was
Patil-SR (ch) 11 of 13
IA-3540-2021.doc
initiated and moratorium was imposed under Section 14 of IBC, the
Hon’ble Apex Court revoked the bank guarantees and for withdrawal
of cash deposit, the Appellant approached the High Court. The
Division Bench clarified that the decision in the case of Rajendra
Prasad Bansal v. Reliance Communication Ltd (supra) applies only to
the parties in that case, although the statement of law as contained
therein, has been overtaken in view of the Supreme Court order.
20. Even in case of Siti Networks Ltd. v. Rajiv Suri (supra), the
position was the same as in the case of Rajendra Prasad Bansal v.
Reliance Communication Ltd (supra), i.e. the Corporate Insolvency
Resolution Process being underway. It is not necessary to consider
either of the decisions in facts of present case. The decisions relied
upon by Mr. Naphade to press for exercise of equity jurisdiction does
not assist the case of Respondent in view of clear enunciation of law
and the statutory provisions. The scope for exercising equity
jurisdiction occurs when there is no law operating in the field as held by
the Apex Court in the case of S.S. Bola vs B.D.Sardana8
21. Resultantly, the inevitable conclusion is that as the Respondent
No.1’s claim did not form part of the Resolution Plan due to failure of
the Respondent No.1 to lodge its claim with the Resolution
Professional, upon approval of the Resolution Plan by NCLT vide order
8 (1997) 8 SCC 522.
Patil-SR (ch) 12 of 13
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dated 1st January, 2021, the debt stood extinguished. Upon
extinguishment of debt, no right vests in the Respondent No.1 in
respect of the bank guarantees or to oppose the release of bank
guarantees. Consequently, the Interim Application stands allowed in
terms of prayer clauses (a) and (b) as under:
“(a) That this Hon’ble Court be pleased to direct
that the Order and Decree dated 20 th January, 2023
stands extinguished and no proceeding in respect
thereto can be continued and / or initiated.
(b) That this Hon’ble Court be pleased to release
all Bank Guarantees issued by the Appellants’ Banks in
favour of Registrar pursuant to the order dated 17 th
June, 2003.”
[Sharmila U. Deshmukh, J.]
Patil-SR (ch) 13 of 13
Signed by: Sachin R. Patil
Designation: PS To Honourable Judge
Date: 10/03/2025 20:12:30